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Interest rates vulnerable to rises on good news. But near term looks like a period of consolidation. Our yield curve will be largely determined by the path of US long-term rates

Bonds
Interest rates vulnerable to rises on good news. But near term looks like a period of consolidation. Our yield curve will be largely determined by the path of US long-term rates

By Jason Wong

UST yields are lower about 1 bp across the curve and down 2 bps relative to the NZ close, not helped by the softer durables goods order data, although we’d note that UK and Germany 10-year rates are down by 1-2 bps as well.

NZ swap rates were little changed yesterday, with rates up 1 bp or less across the curve.

There remains some residual paying interest at the short end of the curve, with the 2-year rate up 1bp to 2.215%, but still well within the tight 2.15-2.25% range it has been stuck in since the May MPS over six weeks ago.

Steady monetary policy for an extended period should keep the range tight over coming months. Thus, the yield curve will be largely determined by the path of US long-term rates.

The near term picture looks like one of consolidation, but with significant net long speculative positioning, the vulnerability is to the upside for rates on any positive news.

Daily swap rates

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Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
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Source: NZFMA
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Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA


Jason Wong is on the BNZ Research team. All its research is available here.

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